Discussing the double top pattern, it’s a bearish sort of reversal trading pattern which generally emerges towards the endpoint of a bullish trend. Double-tap reversal is generally based on two consecutive major peaks with similar highs.
The very first peak is generally formed when the bullish trend will find resistance. After that, the price will retrace until it looks for the support level, known as the neckline.
As it reaches the second phase, this price will move back upward towards the resistance. This resistance was created by the initial peak. But somehow, it fails to break down and instead, it falls towards the neckline again.
It is easy to identify the double tops very often. But somehow, there might be a few of them which are not ideal. This whole pattern is available with three main elements, which are:
- First high –the price retreats at this point for the first time
- Second high – this point will be the second price rejection.
- Neckline – it acts as the temporary support which generally appears between the main high.
As the market goes into the overbought level, it faces some resistance and forms a double top pattern. It normally starts with the initial high as soon as the price retreats until it finds local support. This is the time when you cannot detect the whole pattern.
Within the first top, the entire price starts to pull back until its neckline. It then bounces back to test all the newly formed resistance once again. If the price is not capable of breaking above it, it will start forming a second high.
This is when the traders can identify the trend and figure out when the price will break down.
Yes, it is! A double top is a universal pattern, and it generally works for all trading markets. This includes cryptocurrency as well. Although the double top pattern frequency will be a bit lower compared to the forex market.
All the traders of cryptocurrency are very much relying on technical analysis. And hence the chart patterns are always providing powerful signals when they are used in combination with other technical indicators. But still, all the crypto traders need to be more cautious just because cryptocurrencies are more volatile and are extra unpredictable.
In short, a double top trading strategy is hence a reliable and convenient chart pattern with a high rate of success. But this success generally depends on our ability to convert all of the signals into victorious trades.
If you want to improve your basic trading skills with such chart formations, you should look for some patterns on the historical charts. Or you can also start practising on any demo account. Keep a closer eye on technical analysis and indicators of the current market.